Thursday, February 7, 2013

Pay, Earnings and Production

Physicians' pay has come up recently as a factor in the dreaded and mysterious cost of medical care discussion, costs which seem unfathomable to so many speakers, at least in public. In one particularly obnoxious interview a condescending, smiling, arrogant administrator from somewhere showed an eagerness to cut into physicians' pay that was almost creepy it was so oily. It was unusual as one rarely hears public officials campaign for decreased earnings for anybody. Perhaps this is an offshoot of the demonized 1% but attacking earnings directly, rather than through the indirect tax approach, is distinctly new. CEOs are often vilified for their outrageous incomes but those decisions are really corporate and independent. Physicians' salaries soon will be public decisions as doctors become more and more employees of the state.

Like so many government pronouncements, things are not as easy as they seem---but some symbolic targets are easy. So madmen murder children and we pass a law against a technology. Temperatures are going up so we attack a trace atmospheric element. Lord only knows what will emerge in the new health care problem and its equally problematic solution but several things are certain. The government believes health cost are very important. Obama told Boehner that health care costs exclusively were responsible for the American deficit/debt problem. Things cost money and that money must come from somewhere, usually profits from another source. If the cost and use of medical products cannot be limited, those products will become less and less available.

One interesting sidebar in physician pay is productivity. How much work is done by physicians is done because they are incentivize to work? Put another way, how many patients are cared for simply because the physician is rewarded to do so? Would a farmer produce as much food if he were paid by the day?

This is complicated by the fact that underlying these concerns is the unspoken belief that too much health care is being delivered. While this is couched in terms like "over treatment" and "waste" there are no guidelines for such ideas; they are only slogans. But limited resources will limit activity, waste or not.

As an interesting aside, according to the Kaiser Family Foundation the more significant drivers of health costs include new prescription drugs, technology and administrative needs. Princeton economist Uwe Reinhardt, the man who singlehandedly has raised the alarm about the effect of health care costs to an economy, estimates that physicians’ take-home pay represents roughly 10% of national health care spending. Cutting physician pay by 20% would only reduce spending by 2%.